Iran has reported that oil production from January to May took a jump from 2.93 million barrels/day to around 3.6 million barrels/day. Bijan Namdar Zangeneh, the oil minister for Iran, claims that by year end, Iran’s production will increase to 4 million barrels/day and 4.8 million/day in the next several years.
However, the most recent data shows that Iran seems to have maxed out its actual production capacity and it is highly unlikely that it will have the ability to sustain oil production levels that are higher than 3.6 million barrels/day. This places more political pressure on President Hassan Rouhani and Oil Minister Bijan Namdar Zangeneh to repair damaged oil fields and begin opening new ones. In order for this to happen, Iran requires a major infusion of capital that will need to come from foreign sources.
Foreign companies remain hesitant about investing in Iran’s oil industry. They worry about continued restrictions on financial transactions with Iran, Ayatollah Khamenei’s harsh anti-foreign talk, and the Middle East’s political instability. However, the biggest concern is pertaining to the continuing uncertainty that surrounds Iran’s foreign oil contracts.
Iran’s hostility with foreign involvement in its oil industry dates back to 1953, when the country nationalized the industry from British Petroleum. The Islamic Republic of Iran has gone so far as to include in their constitution their hostility towards foreign investment. In the 1990s, Iran began to permit foreign companies to invest in Iranian oil; however, only when there are “buy back” contracts in place.
Basically, Iran pays compensation to foreign companies involved in the development of Iranian oil resources, allowing the sale of a portion of the oil for a specified period of time, which is generally 5 to 7 years.
These deals were never thought to be overly lucrative; however, with the price of oil so low, at just $50 a barrel, and with the difficulties of operating in that country, Iran is having a hard time attracting international investment.
Iranian leaders are working to produce a new model for foreign investment. It was back in November of 2015 that Zangeneh revealed his plans for Iran Petroleum Contracts, which were designed to last for 20-25 years. He wanted to establish joint ventures between the Iranian National Oil Company and the foreign companies. However, political problems have stopped Zangeneh from being able to settle vital contract details, and so they are currently not yet available.
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